MSc

The present study entitled “EXPORT PERFORMANCE OF TEA INDUSTRY IN SOUTH INDIA IN THE CONTEXT OF ECONOMIC LIBERALIZATION” was conducted with the following objectives.

1) To analyse the export performance of tea industry in South India during pre and post liberalisation period in terms of volume and direction; and
2) To examine the adequacy of policies, financial and other institutional supports in order to comply with the liberalisation agreements regarding Indian tea industry.

Secondary data have been used to study the trends in area, production, productivity and export of tea in South India along with price behaviour and examination of competitiveness. Time series data were collected from various publications of Tea Board for the period 1981-82 to 2002-03. An informal discussion with the exporters of Coimbatore Tea Trade Association was undertaken to examine the adequacy of policies, institutional and financial supports and constraints faced by the exporters.

The trends in area, production, productivity and export of tea in South India as also all India were estimated using the kinked exponential model. Coppock’s instability index, residual based index and coefficient of variation were used to find out instability. The quinquennial averages, Annual Average Growth Rates were also supplemented to find the growth in above variables.

An analysis of area under cultivation, production, productivity and export performance of tea industry at the global level for the period 1981 to 2002 points out to some fundamental issues facing the Indian tea industry. The area under cultivation and production have been increasing in absolute terms throughout the period. The AAGR has been positive for both for all years except during 2002 for production. But the productivity, which stood at a relatively higher level in the early 1990s, has drastically declined, the AAGR being negative since 1991. The exports have declined tremendously even in absolute terms, the AAGR sliding to –11.6 per cent in 2001.

The trends in area under cultivation of tea revealed that there had been a significantly higher growth rate at the all India level during the post liberalisation period. It has to be noted that the growth rates were above the national level in South India in the post liberalisation period, which is contributed by Tamil Nadu. The instability analysis revealed that coefficient of variation was relatively higher for South India compared to all India. Among the tea producing states of SI, Tamil Nadu occupies the first position during pre and post liberalisation period. Except for Kerala, all other states showed significant positive growth rates in production. Residual based index and Coppock’s index indicated that the instability in production is not very high. There has been a continuous decline during the post liberalisation period in Tamil Nadu and SI and the highest is in Karnataka. For Kerala, it was almost stagnant during this period. The Instability index estimates exhibited that variability was higher in all the South Indian states.

The trend analysis in exports of tea from all India showed that there was a significantly higher decline compared to marginal decline in exports from SI. It may be noted that in the post liberalisation period, increase in export quantity from SI was higher than all India. In value terms, the country recorded a high growth rate in the pre liberalisation period. Though in the early 1990s the exports registered a positive growth rate, there was a significant decline in the late 1990s i.e. the post WTO period. Similar trend was observed in the case of South Indian tea exports. The instability analysis revealed the higher instability in case of South Indian exports compared to all India, both in terms of volume and value. Regarding the destination of exports, the share of U.S.S.R remained high during both the pre and post liberalisation period. It has not shown any change, except the decline in case of A.R.E, U.K and Sudan. The industry is also catching up in the Poland, U.S.A and U.A.E markets. The analysis of imports showed that there was a steady increase in the imports from 1992 to 2003 in terms of quantum as well as value. The price analysis showed that there was a sharper decline in the post liberalisation period in case of domestic prices. The domestic and international prices were following the same trend except in the late eighties. The magnitude of decline was lower in the case of international prices during the study period compared to domestic prices. The instability analysis for the whole period as well as sub periods showed lower variation in international prices than in the domestic prices. Among the South Indian markets, high instability was noticed in the case of Coonoor market. Compared to all India prices, the South Indian prices were showing higher instability. The results of NPC values are less than one during post liberalisation period when compared to pre liberalisation period, which depicted the existence of comparative advantage for tea.

The taxation policies denoted that the present taxation structure is not feasible for the tea producers in general when compared with other producing nations. The GOI renewed the Tea (Marketing) Control Order in 2003, removing several shortcomings of the earlier Tea (Marketing) Control Order, 1984, which enriched the Tea Board to exercise stiff regulation including the provisions of Code of Criminal Procedure, 1973. UPASI has taken initiatives like Tea Futures Exchange with Forward Marketing Commission (FMC) and Consortium of Tea Producers in potential upcountry markets.

For promoting tea exports, the Tea Board was established in 1953 under the Tea Act, 1953 during First Five Year Plan. During 1980’s the stress is given towards liberalisation of trade. From 1st August 1998, India unilaterally removed all Quantitative Restrictions (QRs) on imports of items from SAARC countries in order to promote trade among SAARC countries by South Asia Free Trade Area (SAFTA). As of 28th December 1998 a free trade agreement was concluded between India and Sri Lanka, which would result in zero import tariffs for most of the commodities on both sides by 2007. QRs were removed from 1st April 2000 for tea. The developmental allowance given under the Central Income Tax Act, 1961 is raised from the present level of 20 per cent to 40 per cent. The budget announced in 2002-03 increased the customs duty on tea and coffee to 100per cent. With a view to provide stability in terms of income for the small growers, from 2003-04 onwards, Government announced a Price Stabilization Fund of Rs.500 crore for the benefit of tea as well as other plantations. The budget 2004-05 has reduced the customs duty of 50 per cent to five per cent over some of the plantation machinery including that of tea.

While reviewing WTO response strategies, it can be seen that the removal of QRs facilitated import of cheaper teas from Vietnam, Indonesia, China and Sri Lanka. The tea plantations are also faced with import threats from SAARC countries because of the lower CIF values. It would be desirable for the tea plantations to ensure that the tariff quota system is avoided. Otherwise it is difficult to insist the use of tariff quotas by the MFN principle. It is to be advised that GOI may adopt SSM for the import sensitive plantation crops like tea. The Board is also trying to preserve the Intellectual Property Rights of the growers of various forms of tea in foreign markets through Geographical Indication. To check the inflow of low quality substandard teas, there is a need for strict enforcement of PFA, ISO 3720, and ISO 9000 series and HACCP system for the domestic market.

Tea industry in India is subjected to several legislations imposed by the GOI. To strengthen the base of the industry, the Tea Board, the central government and state governments as well as the plantation associations have actively taken part in assisting the producers of tea plantations by both institutional and financial supports. The Tea Board is in the process of implementing an IT based information dissemination plan for the industry, including the electronic trading at the auction centres. The discussion with the exporters revealed that the exporters are satisfied with the role played by the GOI, Tea Board and UPASI as well as the present policy resolutions undertaken by the Tea Board and GOI to a certain extent. They suggested for constructive efforts in generic promotion of tea in all the angles, through increasing production, consumption and exports in general.